European white-label ETF platform HANetf has unveiled Europe’s first ETF to offer pure-play exposure to the equity market of Kuwait.

The fund is the first Europe-listed ETF to provide pure-play exposure to Kuwait.

The KMEFIC FTSE Kuwait Equity UCITS ETF has been created in partnership with KMEFIC (Kuwait & Middle East Financial Investment Company), a Kuwait-headquartered provider of asset management, brokerage, and wealth management services.

The fund represents the first time that a Middle Eastern asset manager has advised and sponsored an ETF in Europe.

Adel Fahed Al Humaidhi, Chief Executive Officer, KMEFIC, commented, “The Kuwait and Middle East Financial Investment Company has always strived to be an innovator in the financial landscape of Kuwait. KMEFIC aims to be a leader in breaking down barriers to investments in Kuwait’s equity markets. We hope that this product will be the first of many that will allow foreign investors to participate in Kuwait’s vibrant emerging economy.”

Hector McNeil, co-CEO, HANetf, added, “Kuwait is an emerging country with huge potential and we are excited both by our relationship with KMEFIC and by what the launch of this new ETF represents for the European ETF industry.

“Kuwait is seeing a surge in foreign investor interest and this ETF provides a much-needed solution for European investors to gain exposure to the Kuwaiti companies poised to benefit from a diversifying economy.”

The ETF provides exposure to the large, mid, and small-cap segments of Kuwait’s equity market by tracking the FTSE Kuwait All-Cap 15% Capped Index. The index currently includes 13 Kuwaiti companies that are weighted by free-float market capitalization subject to a 15% cap per security.

The index, which is reviewed and rebalanced semi-annually, currently has a strong leaning towards banking stocks with seven firms making up 62.9% of the total index weight. Industrials account for the next largest sector exposure (three firms; 14.5%), followed by telecommunications (one firm; 13.4%).

There are four stocks with weights near the 15% cap (Kuwait Finance House, Ahli United Banks, National Bank of Kuwait, and Mobile Telecommunications) with the next largest constituent being Agility Public Warehousing at 9.0%.

Kuwait was recently promoted to “Emerging Market” status by FTSE Russell in their annual country classification review. According to the index provider, the Gulf nation is undergoing an economic overhaul to reduce dependency on oil revenues, attract greater foreign investment, and expand the private sector.

Stéphane Degroote, Head of ETFs & Derivatives EMEA, FTSE Russell, said, “We are delighted that the FTSE Kuwait All-Cap 15% Capped Index has been selected as the benchmark for the first European ETF from a Middle East-based asset manager.

“Kuwait’s recent promotion to Emerging Market status and inclusion into FTSE’s global equity indices is increasing awareness and investment into the country, and the new ETF will offer European investors access to this fast-growing market.”

The ETF comes with a total expense ratio (TER) of 0.80%. It is due to be rolled out across Europe in April including listings on London Stock Exchange in US dollars (KUW8 LN) and pound sterling (KUWP LN) as well as on Borsa Italiana (KUW8 IM) and Xetra (KUW8 GY) in euros.

Until recently, European ETF investors have primarily been able to access Middle Eastern equities through regional funds such as the Xtrackers MSCI GCC Select Swap UCITS ETF (XGLF LN). This fund’s underlying reference – the MSCI GCC Countries ex Select Securities Index – provides exposure to stocks listed in Gulf Cooperation Council countries; however, Kuwaiti equities only account for around 9% of the total index weight, hindering the fund’s ability to act as a tactical tool for investors looking for targeted exposure to the country.

The new launch, however, expands the toolkit available for investors and follows the introduction of the Invesco MSCI Saudi Arabia UCITS ETF (MSAU LN), the first Europe-listed ETF to provide pure-play exposure to Saudi Arabian equities, in July 2018. The Invesco fund has been well received by investors, tipping the AUM scale at over $300 million, as of March 2019.